By the closing bell on Friday, the Dow Jones Industrial Average ended the week down 670 points, while the S&P 500 and Nasdaq similarly saw ups and downs this week before ultimately falling 124 points and 470 points, respectively. The biggest losses came on Monday, when the Dow shed almost 800 points and the S&P 500 fell nearly 130 points, the latter’s worst day since October 2020.
Investors had very little positive news this week, with the most notable data point on Thursday once again pointing to decades-high inflation. According to the Bureau of Labor Statistics, prices increased 0.8% in February and nearly 8% over the past year. Core inflation, which doesn’t take into account the typically volatile measures of food and energy, hit 6.4% over the last 12 months and 0.5% last month alone.
Inflation over the last year is now at the highest point since January 1982, while core inflation is higher than it has been since July 1981.
The biggest price increases were seen among the non-core segments, food and energy. Overall energy prices gained 3.5% in February, while fuel oil gained a whopping 7.7% last month after increasing 9.5% in January, which most experts chalk up to the Russia-Ukraine conflict. Since last February, energy costs have risen 25.6%, while fuel oil and gasoline have increased 43.6% and 38% during that period, respectively.
By the closing bell on Friday, barrels of crude oil on the West Texas Intermediate exchange were priced at $109. The prices are still high but represent a drop from Tuesday when barrels were priced at nearly $130 on the WTI.
Food prices gained 1% last month, driven in part by an extreme drought in the Southern and Western states, with supermarket prices as the primary driver by gaining 1.4% in February. Other services also saw increases: shelter, new vehicles, and apparel all saw price gains of roughly 0.5%. The only sector to see a price drop was used cars and trucks, which fell by 0.2% last month.
“Yet another report of historic inflation is a stark reminder that this is one of the most pressing economic challenges we face today and for the foreseeable future,” Neil Bradley, chief policy officer at the U.S. Chamber of Commerce, said in a statement. “With Russia’s invasion of Ukraine adding to the inflationary pressures, it is time for policymakers to focus on what they can do to reduce rising prices. But first, the administration must stop blaming business for rising prices.”
Bradley said the Biden administration must cut the red tape on domestic energy production, take greater action to support American farmers so that they can increase production, and reduce tariffs to help out the housing market keep up with rising demand. He cited a recent U.S. Chamber survey in which 85% of small businesses said they are concerned about the impact of inflation on their businesses.
The weight of inflation continues to press down on consumers, too. The initial consumer confidence index for March by the University of Michigan shows a drop from 62.8 to 59.7, well below what experts had predicted and the weakest it has been since September 2011.
If the consumer confidence index falls 4 more points, it will hit the same low point as in November 2008, just as the Great Recession was kicking off. As if that weren’t dire enough, the survey predicts personal finances to worsen by the largest proportion since the survey began in the mid-1940s.
Many experts say Russia’s invasion of Ukraine is at least partly to blame for persistent inflation. “The Russian invasion of Ukraine has added fuel to the inflationary fire, where supply chain issues and commodity constraints will surely exacerbate pricing pressures in the near term,” said Peter Essele, head of portfolio management for Commonwealth Financial Network.
“It’s quite possible that year-over-year inflation breaches the psychological benchmark of 10% by mid-summer, causing a breakdown in confidence and hinderance to growth, particularly in more price-sensitive developing markets.”
News out of Ukraine has continued to depress markets, with Russia continuing its march toward Kyiv even as the United States pledges millions of dollars in aid to Ukraine, Western countries are eliminating Russia's favored-trading status, and President Biden banned U.S. imports of Russian vodka and other products.
For markets, the week wasn’t all doom and gloom. On Wednesday, investors rallied on hopes the Russian invasion would soon end. The S&P 500 gained 107 points that day, its best outing since June 2020. Most experts believe, however, that even if the conflict were to end soon, sanctions would remain in place for a while longer, keeping the price of oil high.
Some analysts see risk bottoming out, even if the war continues. “While market conditions have remained very volatile, this week has seen a degree of stabilization of risk sentiment in the absence of major new escalations,” wrote Jonas Goltermann, senior markets economist at Capital Economics in an investor’s note.
“News about the situation in Ukraine and the economic fallout from the war and associated sanctions will no doubt continue to be a key driver in markets next week,” he continued. “But the [Federal Reserve’s] much-anticipated policy announcement on Wednesday will probably take center stage, at least briefly.”
The Fed meets next Tuesday and Wednesday, after which it is largely expected to announce at least a 0.25% increase in the federal funds interest rate.Follow @NickRummell
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